Contents

List of Figures viii

Preface x

Notes on the Contributors xii

Part I Business Relationship Management

in Theory and Practice
1 Current Approaches to the Analysis of
Business Relationships 3
1.1 Current approaches to business relationship management 3
1.2 Business transactions and relationships in
theory and practice 23
1.3 Conclusion 26

2 Power, Leverage and the Strategic Purposes of

Business Relationships 32
2.1 Managing strategic ends in circumstances of buyer
and supplier power 33
2.2 The power matrix: understanding the power circumstance
between buyers and suppliers 40
2.3 Using leverage to improve power positions and
commercial results 45
2.4 Conclusion 50

3 The Operational Means for Successful Business

Relationship Management 52
3.1 The commercial and operational sourcing choices
of the buyer 52
3.2 The commercial and operational customer/account
management choices of the supplier 62
3.3 The ideal and the optimal: selecting appropriate
relationship management styles 75
3.4 Conclusion 92

v
vi Contents

4 A Framework for the Alignment of Buyer and Supplier

Relationships 95
4.1 Value appropriation outcomes in buyer and
supplier exchange 95
4.2 Six ideal-typical frameworks for the successful
alignment of buyer and supplier relationships 103
4.3 Conclusion: using ideal-typical frameworks to
understand and correct relationship misalignments 127

Part II Alignment and Misalignment in

Business Relationship Management
5 Cases in Aligned Buyer and Supplier
Relationship Management 135
5.1 Aligned arm’s-length buyer dominance: the closures case 135
5.2 Aligned arm’s-length reciprocity: the consumables case 139
5.3 Aligned arm’s-length supplier dominance: the
decision-control case 145
5.4 Aligned buyer-dominant collaboration: the
sub-assembly outsourcing case 149
5.5 Aligned reciprocal collaboration: the fan cowl doors case 154
5.6 Aligned supplier-dominant collaboration: the
flow management case 158

6 Cases in Misaligned and Sub-Optimal Buyer and

Supplier Relationship Management 163
6.1 Misaligned and sub-optimal arm’s-length buyer
dominance: the licensing case 163
6.2 Misaligned and sub-optimal arm’s-length reciprocity:
the air travel case 168
6.3 Misaligned and sub-optimal arm’s-length supplier
dominance: the pipeline case 172
6.4 Misaligned and sub-optimal buyer-dominant
collaboration: the construction case 176
6.5 Misaligned and sub-optimal reciprocal collaboration:
the IT outsourcing case 181
6.6 Misaligned and sub-optimal supplier-dominant
collaboration: the bio-materials waste case 187
 Contents vii

7 Cases in Dysfunctional Buyer and Supplier

Relationship Management 193
7.1 Dysfunctional arm’s-length buyer dominance:
the telecommunications case 193
7.2 Dysfunctional arm’s-length reciprocity:
the reverse auction case 198
7.3 Dysfunctional arm’s-length supplier dominance:
the insourcing case 203
7.4 Dysfunctional buyer-dominant collaboration:
the rings and prismatics case 207
7.5 Dysfunctional reciprocal collaboration:
the engine controls case 213
7.6 Dysfunctional supplier-dominant collaboration:
the logistics case 218

Part III Decision Support Tools for Improving

Business Relationships
8 A Way Forward for Managers 225
8.1 Winning internal support for relationship
management strategies 225
8.2 A decision-tree for aligning buyer–supplier
relationships 229
8.3 The outcomes of relationship opportunism in
different power scenarios 232
8.4 Conclusion 236

Index 239
Part I
Business Relationship Management
in Theory and Practice
1
Current Approaches to the Analysis
of Business Relationships

This book discusses the appropriate management of business-to-business

relationships. It is not, therefore, a book about how humans beings can
or should manage all of their personal or their economic relationships.
The book focuses instead on buying and selling relationships between
organisations, whose purpose (at least theoretically if not always in prac-
tice) is to maximise the returns for their shareholders or owners. While
this activity may sometimes involve individuals acting as buyers from,
and suppliers to, business organisations the primary focus is on buying
and selling relationships between organisations.
This chapter is divided into two main sections. The first section
presents a critical appraisal of the current literature on business rela-
tionship management. The second section focuses on what is meant in
theory and practice by a business relationship in the context of an
exchange transaction between a buyer and supplier. This is provided as
a starting point for a theoretical and practical understanding of appro-
priateness in ways of managing business relationships from both the
commercial and operational perspectives of the buyer and the supplier.
This latter issue – aligning business relationships appropriately – is the
subject-matter of the remainder of the book.

1.1 Current approaches to business relationship

management
The general criticisms that can be made about current approaches to
business relationship management are fourfold:

● They tend to be descriptive rather than analytical.

● They tend to focus on one side of the relationship, emphasising the
buyer or supplier perspective, without considering the transaction
between the two parties holistically.

3
4 Business Relationship Management

● They tend to be prescriptive rather than predictive.

● They tend to focus on operational management issues, without fully
explaining the complex interconnections between the commercial
and operational preferences of both the buyer and the supplier in
any exchange relationship.

Not all current approaches to business relationship management have

all of these four weaknesses, and all of them in different ways provide
major contributions to our understanding of the structure and purpose
of business relationships. In order to outline the strengths and weak-
nesses of current approaches to business relationship management the
discussion that follows is divided into a review of two major ways of
thinking in the current literature.

● One-dimensional dyadic approaches

These are approaches that focus primarily on one side of the business
relationship and emphasise how either the buyer or the supplier
can improve what they obtain from any transaction. On the buyer
side this approach encompasses most of the current literature on
Procurement Improvement, including recent discussions of Lean
and Agile Supply Chain Management, as well as the Transaction Cost
Economising School. On the supplier side this approach encompasses
most of the current literature on Customer Portfolio Management
and Relationship Portfolio Mapping, as well as the Resource-based
school in business strategy thinking.
● Holistic dyadic approaches
These are approaches that focus equally on the motivations of buy-
ers and suppliers when they interact and that seek to ascertain to
what extent buyers and suppliers can or cannot work together to
achieve their respective goals. These approaches include the work of
the Industrial Marketing and Purchasing (IMP) Group and the Power
Perspective on buyer and supplier relationship management.

(i) One-dimensional dyadic approaches

Historically the major problem with business relationship management
thinking and practice has been the failure to think holistically about
what business involves entrepreneurially. Ultimately business is about
the ability to buy something cheap and then sell it dear. In the absence
of this it is unlikely that any company or entrepreneur can survive for
very long in business. This means that the ability to buy and sell
effectively must be at the heart of successful business management.
 Current Approaches 5

The problem is, however, that although there has always been recog-
nition that both of these competencies (buying and selling) are impor-
tant there has been a tendency to address competence in these two areas
from a one-dimensional functional perspective. This is not surprising
given that most companies create functional departments to manage
specific competencies, and most Business Schools reinforce this short-
sightedness by insisting on teaching competencies from the same
functional perspective.
A one-dimensional approach to competence development has there-
fore developed in procurement and supply, as well as marketing
and sales, thinking. Rather than focusing holistically on the dyadic
relationship within exchange transactions between buyers and suppli-
ers, the majority of current thinking focuses on how one side can
achieve their goals without necessarily understanding how this impacts
on the other party in the exchange. As a result, most of this thinking –
whether on the buyer or supplier side – tends to be descriptive rather
than analytical, and prescriptive rather than predictive, with a tendency
to emphasise operational as opposed to commercial goals. This cur-
rently dominant way of thinking about improvement in business
relationship management is critically appraised in what follows.

Dominant approaches in procurement and supply thinking

In the procurement and supply literature there are basically three
broad schools. These are the purchasing portfolio management; the supply
chain management; and the transaction cost economising approaches.
Each of these schools of thinking has specific nuances – and these are
briefly outlined below – but all of them also have a great deal in common.
In particular all of these approaches tend to focus one-dimensionally on
the commercial and operational goals of the buyer rather than of the
supplier. Furthermore, there is a tendency in this way of thinking to
prescriptively encourage relationship management styles that favour
transparent and trusting (alliancing or partnering) ways of working.
The purchasing portfolio management approach to procurement and
supply improvement is perhaps the most well recognised way of think-
ing by buyers about business relationship improvement, and it informs
much of the strategic thinking of the main consultancy companies
working with buyers to improve their sourcing competence. The port-
folio approach was developed as a way of helping buyers to think proac-
tively about how they could make improvements in their sourcing
strategies (Kraljic, 1983).
6 Business Relationship Management

This approach recognises that the buyer must understand what is

happening in the supply market from which they source and manage
their suppliers appropriately, given these circumstances. This is
achieved by buyers segmenting their spend by reference to the internal
value to them of particular supply requirements relative to the market
difficulty they experience from the supply market as buyers. The
standard portfolio approach is outlined in Figure 1.1.
As Figure 1.1 demonstrates, the segmentation approach advises buyers
to mange their suppliers based on the specific circumstances they are
in. The approach is not, however, necessarily focused on moving suppli-
ers from one position to another, but rather on focusing the buyer’s
efforts on the appropriate management of suppliers given the portfolio
position they currently inhabit. The hope here is clearly that buyers will
recognise what is the most effective way to manage under certain cir-
cumstances and not waste their time and effort in inappropriate sourc-
ing strategies. Thus, in the strategic quadrant the buyer is expected to
develop close and collaborative relationship management approaches
with the supplier. In the leverage quadrant the buyer is expected to
undertake regular market testing techniques. In the acquisition quadrant
the buyer is expected to focus on operational process improvement and
cost reduction internally and externally. In the critical box the buyer is
expected to undertake contingency planning to avoid potential bottle-
necks in supply in the future.

Figure 1.1 Purchasing portfolio management

Source: Adapted from Kraljic (1983).
 Current Approaches 7

This approach is, therefore, prescriptive for the buyer based on the
current segmentation of supply market difficulty and value for the
buyer. It has been widely adopted by buyers in practice, and it is widely
taught by academics as a way of improving procurement and supply
competence. The problem with this approach, and others that focus on
the supplier’s attractiveness and relationship strength with the buyer
(Olsen and Ellram, 1997), is, however, that they are essentially a one-
dimensional way of thinking. While this is a tool that many buyers find
useful its major problem is that it is static and does not provide buyers
with the necessary thinking to allow them to move to more congenial
leverage positions than those they currently experience.
Even when writers attempt to use the approach to suggest ways for
buyers to move to more congenial sourcing situations the way of think-
ing is still one-dimensional (Gelderman and van Weele, 2002). The
major reason for this is because the approach focuses only on the cur-
rent situation of suppliers and assumes that the buyer can devise appro-
priate strategies without understanding the likely responses of any
supplier to the strategies that the buyer may devise in the future, and
vice versa.
In recent years an alternative and more prescriptive approach to pro-
curement and supply improvement has developed. This approach is
known as supply chain management, although it has within it a number
of variants. Despite the differences between the thinkers in this school
there is, however, substantial agreement about how buyers should effec-
tively manage their business relationships with suppliers. Most writers
in this school also tend to focus one-dimensionally on the relationship
from the perspective of the buyer, and tend to prescribe the use of a
highly transparent and trusting relationship between the buyer and the
supplier, using long-term and non-adversarial collaborative relationship
management styles.
The supply chain management approach has become something
of a dominant way of thinking about best practice amongst buyers.
The approach was originally developed in the automotive sector in
Japan but has been developed since in other sectors – like supermarket
retailing, aluminium and computer manufacturing – where demand
and supply and power variables have been conducive (Cox et al., 2003).
The basic approach is often referred to as ‘lean thinking’ because it
is based on the copying of Toyota’s lean manufacturing process, which
historically involved a very high level of outsourcing of sub-assembly
and components to suppliers. These supply relationships – focused
on improving the value for money that Toyota could pass to its
8 Business Relationship Management

customers – are normally long-term and highly collaborative (Womack,

Jones and Roos, 1990; Womack and Jones, 1996).
From this automotive practice a dominant one-dimensional prescrip-
tive view has developed amongst lean writers and many buyers that,
because this approach has been successful in the automotive and in
other sectors, it must be the best practice approach that all buyers
should adopt to improve their sourcing competence (Carlisle and
Parker, 1989; Hines, 1994; Macbeth and Ferguson, 1994; Hines and
Rich, 1997; Hines et al., 2000). This view, while obviously highly appro-
priate in some circumstances, is clearly simplistic as a generalisation.
This is because buyers have to manage in many different demand and
supply and power circumstances from those experienced by automo-
tive, aluminium and computer manufacturers (Ramsay, 1996; Cox,
1997; Cox and Townsend, 1998; Bensaou, 1999; Cox, Sanderson and
Watson, 2000; Cox et al., 2002, 2003).
Interestingly enough the lean approach to supply chain management
has recently been challenged by an ‘agile’ school. The agile school con-
tends that the lean approach cannot be the most appropriate way for
buyers to source because sometimes the demand and supply variables
that have to be managed are not the same (Stalk and Hoult, 1990;
Meyer, 1993; Towill, 1996; Mason-Jones and Towill, 1999; Naylor, Naim
and Berry, 1999; Christopher, 2000; Harrison and van Hoek, 2002). In
highly volatile supply chains (where customer requirements are often
unpredictable, and supplier capabilities and innovations are difficult to
control) a more responsive agile approach may be required by buyers.
This discussion has led to considerable debate amongst lean and agile
proponents of supply chain management, but this debate does not
change the basic thrust of the supply chain management school’s way
of thinking about the best way for buyers to manage suppliers.
Essentially both approaches adopt the view that the best way for buyers
to mange suppliers is through long-term and highly collaborative rela-
tionships, based on non-adversarial, trusting and transparent ways of
working. Interestingly, this is exactly the same prescriptive approach
adopted by a third variant of supply chain management thinking. This
approach is sometimes referred to as ‘lean supply’.
The proponents of lean supply move some way from the one-
dimensional approach of the lean and agile approaches and attempt to
describe the goals and motives of both the buyer and supplier
(Lamming et al., 1996, 2001). In doing so this school demonstrates
a broad understanding of the range of relationship management
 Current Approaches 9

approaches that buyers can adopt when they interact with suppliers.
While this school clearly understands the holistic nature of business
relationships descriptively, the approach does not necessarily fully artic-
ulate what the goals and motives of buyers and suppliers are in any
business relationship. The reason for this is because it also prescriptively
argues that the best way for buyers and suppliers to interact is by
developing transparent and trusting business relationships.
While transparency and trust is clearly one way of managing
relationships, and one that clearly benefits buyers who do not have full
information about supplier strategies and their costs of operations, it is
not necessarily clear that there is anything in transparency for all
suppliers – sometimes there may be, but sometimes there may not.
Whether or not there will be is unfortunately not predicted by any of
the current supply chain management thinking. This, plus the failure to
properly articulate what the concepts of partnering or alliancing mean
to both parties in terms of their operational and commercial goals,
plus the tendency to focus one-dimensionally on the needs of the
buyer, ensures that this way of thinking is highly limited as a guide to
what is best practice for buyers in relationships with suppliers and
vice versa.
The final one-dimensional buyer focused approach is that associated
with transaction cost economising. The transaction cost economising (TCE)
school was developed to provide a way of thinking about appropriate
governance structures for firms when they deal with the make–buy deci-
sion. Williamson developed the idea that there was an alternative gov-
ernance mode that buyers have to be aware of when they consider
insourcing and outsourcing relationships in markets. Essentially
Williamson was one of the first economists to realise that while buyers
can use market testing governance structures to manage relationships
with suppliers, this is only one of the ways in which buyer and supplier
relationships need to be managed (Williamson, 1975, 1985).
The basic thrust of the TCE approach to business relationship man-
agement is that in many buyer and supplier relationships hybrid forms
of governance are required. This is because buyers often wish to reduce
the number of suppliers that they do business with pre-contractually;
and post-contractually, what started as multi-bidding supply contests
may – over time – become limited bidder market places. In these cir-
cumstances (of what may be termed ‘bilateral governance’) Williamson
argues that alternative governance structures to those that use pure
forms of insourcing or arm’s-length market transactions are required to
10 Business Relationship Management

ensure that the transaction costs in the relationship are economised

(Williamson, 1996).
There is clearly significant overlap in the TCE approach and the
supply chain management school (and, as we shall see later, in the IMP
Group approach). This is because all of these approaches focus almost
exclusively on extensive, close and collaborative relationships between
buyers and suppliers that can exist for lengthy periods of time. The
major difference between the TCE approach and the supply chain man-
agement school is, however, Williamson’s clear understanding that
collaboration can pose serious problems for buyers in a world in which
suppliers may use opportunism (self-seeking interest with guile) against
buyers’ suffering from bounded rationality (Simon, 1955).
Williamson was particularly concerned by the fact that in many
circumstances of bilateral governance a ‘fundamental transformation’
could occur in the relationship. This implied that what had been a
buyer-controlled relationship could be transformed into one in which
the supplier controlled the buyer through the creation by the supplier
of unforeseen switching costs that limit the room for manoeuvre of
the buyer.
Williamson’s concerns are presented graphically in Figure 1.2, which
demonstrates that while ‘comprehensive contracting’ may be possible

Figure 1.2 Opportunism, bounded rationality and governance mechanisms

Source: Adapted from Williamson (1985, p. 67).
 Current Approaches 11

for the buyer in some circumstances, in highly collaborative relation-

ships in which future contingencies are not fully known different gov-
ernance structures are needed. Williamson calls this ‘general clause
contracting’ – or agreeing how the relationship will operate in the
future even though all contingencies cannot be known now. The prob-
lem of the ‘fundamental transformation’ is demonstrated by the fact
that buyers can operate with ‘serious contractual difficulties’ and, if
they do not manage their general clause contracting appropriately, they
may very well end up operating in this quadrant over time.
The major significance of this insight, when compared with the
supply chain management school, is the recognition that long-term col-
laborative relationships between buyers and suppliers are not necessar-
ily always benign or the ideal to which all buyers and suppliers should
aspire. On the contrary, though the supply chain management school
tends to prescribe this form of long-term collaboration as the best way
to achieve competitive advantage for both parties, and especially for
buyers, Williamson’s analysis demonstrates that sometimes long-term
collaborative relationships can create shifts in control from the buyer to
the supplier, that lead to sub-optimal sourcing and transaction cost
economising outcomes for the buyer.
Despite these risks of opportunism, the TCE approach contends, with
the supply chain management approach, that the best way for buyers
and suppliers to interact when they have business relationships is to
pursue mutuality (Williamson, 2000). This implies that, despite con-
cerns about opportunism and bounded rationality, the TCE approach is
also firmly locked into the view that mutual transparency, focused on
finding the most cost economising way to manage transactions, is the
best way for buyers and suppliers to work together.
There are of course problems with this viewpoint. The most impor-
tant of all is the criticism that while buyers may wish to economise on
the costs of transactions it is not clear why this should be the case for
suppliers. This is a similar criticism to that levelled at the lean supply
school above and indicates that the TCE approach is clearly one-
dimensionally focused on the interests of the buyer. This fact has been
demonstrated by the continuing debate about the relative utility of the
TCE approach when compared with the competence perspective in
business strategy (Williamson, 1999).
This debate demonstrates quite clearly the problem of writers
focusing on different aspects of the business relationship. The TCE
approach focuses on what is clearly in the best interest of the buyer;
while the competence perspective focuses on the strategies of suppliers
12 Business Relationship Management

to close markets to their competitors and create opportunities to put

buyers in situations of serious contractual difficulties, if they can. It is
not surprising that neither side can agree on what is the best way to
analyse business relationships. This is because both approaches are
partial and one-dimensional in their focus.
Despite this, the TCE approach has probably done more than any
other to specify the key variables that a buyer must focus on when
engaging in transactions with suppliers – particularly in relation to post-
contractual sourcing risks when buyers collaborate extensively with
suppliers. Nevertheless, the approach suffers from a number of weak-
nesses. The approach is clearly one-dimensional in that it does not pro-
vide a detailed understanding of the motives and goals of the supplier,
and tends to argue that economising on the costs of transactions should
be the shared goal of both the buyer and the supplier. This demonstrates
a somewhat overly buyer-focused way of thinking about the purposes of
a business relationship. This school also tends to be overly prescriptive
in arguing that mutuality is the preferred way to manage all business
relationships, without specifying clearly what mutuality means in
practice for the buyer or the supplier.
Overall the fundamental problem with much of this one-dimensional
buyer-focused literature is that, apart from the purchasing portfolio
management approach, most of the thinking tends to prescribe the
benefits of trust, transparency and collaboration, without ever fully
specifying what this means in practice for either the buyer or the sup-
plier. There is, as a result, a substantial body of literature that argues that
there are significant benefits for buyers if they adopt alliancing or
partnering approaches. The problem with this literature is that its
proponents do not fully specify what the alternatives for the buyer and
supplier are, or articulate what the risks as well as rewards are for both
parties from the adoption of this approach.

Dominant approaches in marketing and sales thinking

The first major marketing and sales school discussed here is that focused
on supplier leverage improvement through customer portfolio manage-
ment. This approach has a number of variants but is widely adopted
operationally by practitioners and also by academics and consultancies
seeking to raise the competence of marketing and sales staff. Like its
partner on the buying side – purchasing portfolio management – this
approach is also one-dimensional. This is because it focuses primarily
on the commercial and operational goals of the supplier, without
thinking through the likely response of the buyer in any relationship.
 Current Approaches 13

Like purchasing portfolio management on the buyer side, however, it

does not prescribe just one way of working and provides for a range of
alternative choices from which mangers can choose when they act as
suppliers in different competitive market circumstances.
One of the most recent developments of the customer portfolio
management approach emphasises the importance of managing buyers
for profits not just for sales. This approach is similar in many ways to
the purchasing portfolio approach developed one-dimensionally for
buyers. This approach is outlined in Figure 1.3.
As Figure 1.3 demonstrates, suppliers can think about their relation-
ships with buyers in four major ways:

1 Carriage trade – this type of buyer costs a great deal to service but will
pay a high net price if high quality is provided.
2 Aggressive – this type of buyer is also high cost to service and expects
high quality but only wishes to pay the lowest price possible.
3 Passive – this type of buyer is relatively low cost to service and allows
the supplier to earn a high net price for any given level of quality or
service.
4 Bargain basement – this type of buyer is also low cost to service but
only low net prices can be earned for any given level of quality or
service.

Figure 1.3 The customer classification matrix

Source: Adapted from Shapiro et al. (1987, p. 104).
14 Business Relationship Management

The basic argument developed by Shapiro et al. is that over time cus-
tomers will attempt to migrate from the carriage trade quadrant to other
quadrants to the detriment of the supplier’s ability to leverage returns for
themselves. To counter this they recommend action plans using repeated
analysis, the pinpointing of costs, the analysis of profitability dispersions,
the production of support systems and the focusing of strategy to
maintain the supplier in the most congenial profitability situation from
the perspective of the supplier.
Clearly this type of approach to business relationship management, as
well as others within this tradition that adopt similar portfolio planning
approaches from the perspective of the supplier, is one-dimensional
(Turnbull, 1990; Turnbull and Zolkiewski, 1995). This is because, like the
purchasing portfolio approach, the analysis focuses only on one side of
the relationship and seeks to provide managers with tools and tech-
niques to allow them to leverage their position with the other party (the
buyer in this case), but without a proper understanding of the goals and
motives of the other party in the exchange relationship. Given this, even
though the approach may provide beneficial ways of thinking about
leverage for the supplier in isolation, it fails to provide for a full under-
standing of the interaction between buyer and supplier and therefore
does not provide a predictive approach to relationship alignment.
The second major approach considered here is that developed by the
Resource-based (RB) school. This approach is widely adopted by man-
agers developing their business strategies for competitive advantage,
and by academics and consultants attempting to raise corporate
competence in business strategy. This approach also tends to be one-
dimensional. This is because it focuses primarily on what suppliers
should do to achieve sustainable competitive advantage, without nec-
essarily thinking through the likely responses of buyers or customers in
any relationship. Furthermore the approach tends to be prescriptive in
that it argues that suppliers have only one strategy choice and that is to
pursue ‘isolating mechanisms’ that close markets to their competitors so
that they can leverage value from buyers.
There is clearly nothing wrong with this recommendation as an ideal
approach for suppliers who seek to achieve above normal returns on a
sustainable basis. The major problem, however, is that it provides little
guidance about appropriate relationship management choices for sup-
pliers who cannot do this, and who are operating in more or less com-
petitive markets in which supplier leverage over customers and
competitors is not sustainable. This, unfortunately for the RB school,
tends to be the circumstance under which most companies operate.
 Current Approaches 15

This means that the RB school, while able to explain the ideal position
for a supplier to dominate business relationships with customers, does
not provide any insight into how companies should manage their
relationships when they cannot.
There is a wide literature in the RB school, and it currently dominates
strategic management thinking academically, but perhaps the most fun-
damental argument of the RB school is that a supplier can only achieve
rents (above normal returns) in a business relationship with a customer
if it is able to close markets to competitors through the development of
isolating mechanisms (Rumelt, 1987; Barney, 1991; Cox, Sanderson and
Watson, 2000). The key isolating mechanisms that companies can seek
to develop include:

● property rights
● economies of scale
● information impactedness
● causal ambiguity
● reputation effects
● buyer switching costs
● buyer search costs
● communication good effects
● collusive effects

The RB school also focuses heavily on the ability of companies inter-

nally to manage their resources more effectively than their competitors,
so that a relative superior competence is developed that is difficult to
replicate by others (Wernerfelt, 1984; Hamel and Prahalad, 1990; Peteraf,
1993; Penrose, 1995). While this approach clearly provides important
insights into how suppliers should operate in pursuit of their own com-
mercial and operational goals, by focusing one-dimensionally on the
strategy of the supplier in relation to its competitors and customers it is
unlikely to provide a holistic and predictive approach to effective busi-
ness relationship management. It helps managers understand what they
should do to reach the ideal leverage position with their customers, but
provides no real guide to action when this cannot be achieved.
In this sense the RB school provides limited practical guidance for
managers who will never be able to create isolating mechanisms against
their competitors and customers. Furthermore, by focusing on only one
approach it tends to be prescriptive (however ideal this may be in the-
ory) and one-dimensional and fails, thereby, to provide guidance for
managers about how to deal with buyers when sustainable isolating
mechanisms do not exist or cannot be created.
16 Business Relationship Management

The relationship portfolio mapping approach

This problem has been avoided on the supply-side by writers who have
recognised that there is a portfolio of relationship management
approaches that suppliers have to use when they interact with buyers. This
approach is called Relationship Portfolio Mapping (RPM). The RPM approach
focuses both analytically and predictively on the relationship manage-
ment choices that suppliers must make in any transaction. The RPM
approach is firmly grounded in political economy, resource dependency,
TCE and relational contracting ways of thinking (Krapfel et al., 1991).
Perhaps the most important contribution of the RPM approach has
been its development of a comprehensive specification of relationship
management choices available for a supplier when interacting with
a buyer. The approach is derived from work in political economy and
marketing channel management, in which issues such as control, con-
flict and power are perceived to be of major significance for the choice
of relationship management style by suppliers (Zald, 1970; Walmsley
and Zald, 1973; Benson, 1975; Stern and Reve, 1980; Achrol et al., 1983;
Arndt, 1983; Frazier, 1983; Schul et al., 1983; Anand and Stern, 1985;
Dwyer and Summers, 1986; Gaski, 1986; Thorelli, 1986; Heidi and John,
1988; and Dwyer and Sejo, 1987).
As Figure 1.4 demonstrates, four types of relationship are defined in
the RPM approach. These are defined as follows:

1 Partner – a relationship with high interest communality and high

relationship value, with equitable sharing of profits.

Figure 1.4 Relationship portfolio mapping

Source: Adapted from Krapfel et al. (1991).
 Current Approaches 17

2 Friend – a relationship with high interest communality but low

relationship value, with monitoring of future potential opportunities.
3 Rival – a relationship with low interest communality and high
relationship value, with attempts to find alternative partners.
4 Acquaintance – a relationship with low interest communality but low
relationship value, with only standard offerings provided.

The RPM approach further develops this segmentation by demon-

strating the relationship management modes that may be used in any
transaction in relation to the perceived power balance and the level of
interest communality between the two parties. The six types are defined
as follows:

1 Collaboration – a transparent and trusting relationship mode, with

extensive information sharing in balanced power situations, with
high interest communality.
2 Negotiation – an arm’s-length relationship mode, with limited
information sharing, a balanced power situation, with low interest
communality.
3 Administration – a uni-directional relationship mode, with the sup-
plier directing information flow but offering promises to the buyer.
4 Domination – a uni-directional relationship mode, with the supplier
directing information flow and threats rather than promises to the
buyer.
5 Accommodation – a cooperative relationship mode in which the
supplier provides non-sensitive information to the buyer.
6 Submission – a non-cooperative, but submissive relationship manage-
ment mode in which the supplier provides information reluctantly
to the buyer.

Relationship mapping occurs when the supplier chooses a relation-

ship management mode that is appropriate for a particular relationship
type. The RPM approach concludes that the administration, collabora-
tion and accommodation modes are the most appropriate to link with
partner and friend relationship types. In acquaintance and rival rela-
tionship types the domination, negotiation and submission types are
the most appropriate. Appropriateness is defined by reference to the
degree to which the selection reduces conflict and the transaction costs
associated with information search, relationship monitoring and
contract enforcement.
The strength of the RPM approach is that it deepens our understanding
of the need to think about relationships in terms of the appropriateness
18 Business Relationship Management

of particular modes of management under specific circumstances.

Furthermore, the RPM approach recognises that power plays a major role
in the selection of optimal modes for particular relationship types. This
improves our understanding of the complexity of choice for managers in
relationships considerably, and begins the process of developing an ana-
lytical and predictive way of thinking about managerial choice, when
compared with the more descriptive customer account perspective
discussed earlier.
Despite this the RPM approach suffers from two major weaknesses.
The first is that it is written almost exclusively from the perspective of
the supplier and does not consider whether or not the buyer’s perspec-
tive on relationship management is likely to be different or the same
as the supplier’s. This is true even though the RPM school recognises
that it is desirable for the supplier to match their relationship type and
mode to that of the buyer, and signal the mismatch to the buyer. While
this demonstrates an understanding of the need to be holistic in think-
ing about the relationship between the buyer and the supplier, the RPM
approach does not provide a clear specification of which specific rela-
tionship management types and modes match with particular buyer
relationship management types and modes to provide for effective and
efficient relationship alignment.
Given this, the RPM approach is not truly holistic and remains one-
dimensional on the supplier’s side of the relationship, even though it
provides a much more sophisticated understanding of the relationship
management choices available for both buyers and suppliers. The sec-
ond major weakness is that while the approach discusses the concept of
power it does not fully articulate what the key variables are that shape
the power circumstances that buyers and suppliers may find themselves
in. Nor does this approach explain how these attributes of power impact
directly on the relationship management choices of both parties, or
how suppliers (or for that matter buyers) can move to more congenial
power circumstances or relationship management types and modes.
This implies that while the RPM approach is a valuable addition
to our understanding of business relationship management it fails to
properly specify what the impact of power is on both parties to the
exchange, and therefore provides only a one-dimensional conceptuali-
sation of relationship alignment. As the discussion that follows demon-
strates, it is only by fully understanding the transaction between the
buyer and supplier from the perspective of both parties that an holistic
understanding can be attained, and a truly analytic and predictive
approach to relationship alignment created.
 Current Approaches 19

(ii) Holistic dyadic approaches

There are two approaches to business relationship management that do
not take a primarily one-dimensional approach. The two holistic dyadic
approaches to business relationship management are those associated
with the work of the International Marketing and Purchasing (IMP) Group
and the Power Perspective School. Both of these approaches to business
relationship management contend that it is necessary to understand the
goals and motives of both the buyer and supplier as they interact
together. This implies that effective business relationship management
can only be achieved if both parties are aware of the goals of the other,
and that these are aligned effectively both now and in the future.
Despite this agreement on the need for a holistic approach there are
significant differences between the two perspectives.
The International Marketing and Purchasing (IMP) Group
The IMP Group is a broad church and has developed its detailed insights
into buyer and supplier relationships over twenty years (Hakansson and
Wootz, 1979; Ford, 1980; Turnbull and Cunningham, 1981; Hakansson,
1982; Ford, Hakansson and Johanson, 1986; Easton, 1992; Johanson
and Mattsson, 1992; Ford, 1998, 2002). The major benefit of the IMP
approach has been its unequivocal focus on the need to understand the
complex interrelationships between the buyer and the supplier from the
perspective of both parties when they interact. Thus the IMP approach
has provided an extremely comprehensive descriptive account of the
nature of business relationships. This is outlined in Figure 1.5.
As Figure 1.5 demonstrates, the IMP school has provided the most
detailed account possible of the factors that impact upon buyer and sup-
plier transactions. The IMP approach contends that the interactions
between buyers and suppliers are shaped by ‘environmental’ factors,
which neither party to the exchange can directly control (limiting fac-
tors). This involves such aspects as market structure; dynamism; interna-
tionalisation; channel position; and, social system. The IMP approach
contends, however, that there are some elements of the interaction that
buyers and suppliers can influence (handling factors). These aspects are
referred to as ‘atmosphere’ and include such elements as power/depend-
ence; conflict and cooperation; and, expectations (IMP, 2002).
One of the major benefits of this approach is its inclusiveness. In par-
ticular, work by Campbell has demonstrated clearly the need for buyers
and suppliers to think about the strategies they should adopt under
different types of buyer and supplier interaction (Campbell, 1985). He
argues that there are three types of strategy – competitive, cooperative
20 Business Relationship Management

Figure 1.5 The IMP interaction model

Source: D. Ford, Understanding Business Markets and Purchasing (2002, p. 29).

and command – that buyers and suppliers can use with one another,
and that sometimes these will create a match or mismatch in a rela-
tionship depending on the strategies that both sides adopt. This is a
valuable contribution because it demonstrates that the relationship
between the buyer and the supplier must be understood from the per-
spective of both the buyer and the supplier. This portfolio approach to
buyer and supplier relationships has also been adopted to understand
how different types of relationships can be managed in the automotive
sector (Bensaou, 1999).
The major weakness of the IMP approach, however, is its lack of
predictive focus on the relative importance of any of the variables spec-
ified in an interaction between a buyer and supplier. This is another way
of saying that the IMP approach is comprehensive but primarily
descriptive, providing limited predictive guidance for managers in how
to manage relationships in any particular circumstance. The approach
also tends to be dominated by marketing and sales writers and demon-
strates a lack of comprehensive understanding of the commercial and
operational motives of buyers. Empirically buyers often demonstrate
an unwillingness or inability to develop the close collaborative rela-
tionships that the IMP Group believes are the most conducive for the
majority of sourcing requirements.
 Current Approaches 21

A further critique that can be made is similar to that levelled against

the supply chain management approach. This is that the IMP approach
also tends to emphasise the benefits of those interactions between buy-
ers and suppliers that produce the most mutually beneficial outcomes,
without explaining in detail what this concept means for buyers and
suppliers in practice (Hakansson, 1982). This is undoubtedly due to the
research bias of the IMP approach that has focused primarily on long-
lasting and highly collaborative buyer and supplier relationships.
That said, the approach has provided considerable insight into the
factors that impinge on buyer and supplier choices. The major problem
with the IMP approach is that while it is comprehensive in detailing the
major factors involved in buyer and supplier exchange and interaction
it does not provide any predictive guide for action by managers, nor
does it explain fully which variables are likely to be more important
than others in determining transactional outcomes in specific circum-
stances. In fact the IMP Group remains essentially pessimistic about the
ability of managers to control many of the environmental factors that
impinge on relationships (Ford, 2002).

The Power Perspective

The Power Perspective on buyer and supplier relationship management
has a long tradition of its own, and has also been supported by the work
of the IMP Group and the RPM portfolio approach. As we saw above,
both of these approaches have focused extensively on power and
dependence as major concepts and have always accepted that power is
central to an understanding of transactions( Zald, 1970; Campbell and
Cunningham, 1983; Dwyer and Summers, 1986; Gaski, 1986; Thorelli,
1986; Frazier and Anita, 1995; Hakansson and Gadde, 1997).
The Power Perspective is a holistic approach and focuses explicitly on
the exchange relationship between the buyer and supplier. Unlike the
IMP approach the Power Perspective has, however, always asserted that
the relative power of the buyer and supplier is the determining factor in
the operational and commercial outcome in any transaction. This is the
approach that is adopted in this volume, which is an attempt to link the
thinking in the RPM and IMP approaches with the Power Perspective in
order to develop both a predictive and holistic approach to business
relationship management.
The Power Perspective is evident in many areas of business manage-
ment writing. The approach claims many proponents, all of whom
have articulated many of the key variables that impact on the relative
power of buyers and suppliers (Emerson, 1962; Blau, 1964; Cook, 1977;
22 Business Relationship Management

Cook and Emerson, 1978; Pfeffer and Salancik, 1978; Porter, 1980; Cook
et al., 1983; Provan and Grassenheimer, 1994; Maloni and Benton,
2000). Despite this, the approach has one major weakness, and that is
that while many writers use the concept it has never been fully articu-
lated theoretically or in practice. This is the major criticism made of the
power school by writers who argue that power may be important but it
has never been satisfactorily defined conceptually (Williamson, 1985).
There is clearly some truth in this criticism but despite it there is still
a wide consensus that power is a significant variable that must be
understood in business relationships.
The Power Perspective has, therefore, articulated many of the
variables that impinge on buyer and supplier leverage of one another,
and these will be discussed in some detail in what follows. Despite this,
the approach, while holistically interested in the exchange relationship
between the buyer and the supplier, has three major problems. First,
writers use the concept without properly defining it (Scott and
Westbrook, 1991). Second, they use it but focus on only one party in the
exchange (Campbell and Cunningham, 1983; Ramsay, 1994 and 1996).
Third, amongst most writers in this school there is no real attempt to
link the variables that impinge on buyer and supplier power predic-
tively with relationship management outcomes or strategies.
Thus, while the specification of power variables has become increas-
ingly sophisticated, the analysis of the link between power circumstances
and the relationship management strategies that buyers and suppliers
can use within them has never been fully developed. This is another way
of saying that the existing literature, while providing a way of describing
the current power circumstances that exist, does not provide a way of
predicting which relationship management approaches are likely to be
the most appropriate under specific circumstances for either the buyer
or the supplier to adopt to achieve their respective goals.
Despite this, the RPM approach has provided a useful specification
of the relationship management styles that can be used under different
circumstances (Krapfel et al., 1991), and the Power Perspective has
provided an indication of many of the levers that buyers and suppliers
can use to move from existing power circumstances to those that are
more conducive (Cox, Sanderson and Watson, 2000; Cox, 2001a,b).
It seems evident, therefore, that it is through the linkage of the
relationship management approach of the RPM school and the specifi-
cation of power circumstances that a more holistic analytic and pre-
dictive approach to the alignment of business relationships between
buyers and suppliers will be achieved. Before this can be undertaken it
 Current Approaches 23

is necessary to specify more closely what buyer and supplier trans-

actions are, and how these can be understand operationally and
commercially.

1.2 Business transactions and relationships in

theory and practice
Current approaches to the analysis of business relationships provide
rich and detailed descriptive information but they also contain major
gaps, or tend to emphasise one aspect of the relationship to the exclu-
sion of a more holistic approach. Overall, however, if there is one major
criticism of current approaches it is that they fail to provide the analytic
basis to allow managers (whether operating as buyers or suppliers) to
predict which types of relationship management approaches are the
most appropriate to use under different circumstances.
The major reason for this is because current approaches have not fully
specified the reasons for business relationships, or the full range of rela-
tionship management choices that are available to both parties when
they come together in a transaction that exchanges goods and services
for money. This is because none of the current approaches properly
explains the commercial and operational preferences of buyers and sup-
pliers when they interact with one another. The reason for this malaise
is because current approaches fail to properly understand that buyer
and supplier preferences are driven by the power circumstances in any
relationship.
In other words, what a buyer or supplier chooses to do operationally
or commercially in any relationship is contingent on the power cir-
cumstances that they find themselves in now, and the power circum-
stances they believe they can create in the future. Clearly some current
approaches recognise the fact of power in relationships but to do so
is not necessarily to fully specify what the concept means, or explain
how it acts as the driving force in shaping and limiting relationship
management choices for both the buyer and supplier.
This book seeks, therefore, to provide an alternative view of business
relationship management that is both analytical and predictive rather
than merely descriptive and prescriptive. The aim of this volume is to
outline in detail the conditions that must be in place for the buyer and
supplier to manage business relationships successfully, under the differ-
ent circumstances of power and leverage that can exist when exchange
transactions occur. In doing so we hope to specify clearly what a busi-
ness relationship entails, both operationally and commercially, and also
24 Business Relationship Management

the full range of relationship management choices that are available to

the buyer and supplier when they interact.
We also hope to demonstrate that by understanding the ideal-typical
relationship management approaches that work best under different
power situations it is possible for managers to understand and predict
which types of relationship approaches, and which types of relationship
partners, are most conducive for success and which will lead to failure.
To achieve success in relationships it is clear, therefore, that one must
create an alignment of buyer and supplier commercial and operational
goals under specific circumstances of power.
To assist the reader in understanding the argument of the book,
Figure 1.6 provides a way of thinking about the theoretical and practi-
cal basis for business relationships. As the figure demonstrates, business
relationships can be understood operationally and they can be under-
stood commercially. The key point being made here is that, although
both of these aspects are important, the ultimate purpose of a business
relationship is always fundamentally about commercial rather than
operational outcomes. In other words, success or failure in business
relationships must be understood primarily in commercial rather than
operational terms.
Clearly these two aspects of relationships are inextricably inter-
twined, but it is the commercial outcome – the ability of each party in

Figure 1.6 Business relationships as transaction and outcome

 Current Approaches 25

the exchange relationship to achieve an acceptable commercial

outcome – that is the ultimate test of the success or failure of a business
relationship for both parties. This does not imply that both sides have
to achieve the same commercial outcome to make the relationship suc-
cessful, only that each party in a transaction must be satisfied with the
commercial outcome that they have received.
It follows, however, that in some business relationships (in theory
at least) both parties will achieve their commercial goals (transactional
harmony) and in other transactions one party may be more satisfied
than the other with the commercial outcome (transactional tension). If
both parties are dissatisfied with the commercial outcome then a state
of transactional conflict will exist. This raises the possibility that conflict
and tension is inevitable in business relationships, and that transactional
harmony may be the exception rather than the rule. What this means is
that many relationships occur even though the commercial goals of one
or both of the parties involved are not being completely achieved.
It is our view that this is likely to be the rule in business relationship
management and that transactional harmony may be difficult to sustain
in many circumstances in the real world.
Indeed it may well be the case that the best commercial outcome for
the buyer is to operate with transactional tension for the supplier and for
the supplier to seek a commercial outcome that has transactional tension
for the buyer. This is because the aim of both the buyer and the supplier
is not to satisfy the commercial goals of the other party to the exchange,
but to maximize their own. This does not mean that a buyer or supplier
would necessarily reject transactional harmony if this maximised or sat-
isfied their own commercial goals, but rather that they would choose
whichever outcome provides them commercially with the best outcome
from their point of view. This is simply to make the point that nobody
enters into a commercial relationship to help the other party – they do
it to help themselves (Cox, 2005).
This raises the issue of course of why a buyer or a supplier enters into
a relationship in which they do not achieve their commercial goals
when the other side is doing so. The answer to this question is what
this book is fundamentally about. It is our view that buyers and suppli-
ers often have to enter into asymmetrical commercial arrangements
because of the power circumstance they are in.
Both the buyer and supplier have to make complex calculations
about what is the best option available to them to achieve their com-
mercial goals. Sometimes they will have extensive power attributes that
allow them to leverage continuous improvements in their commercial
26 Business Relationship Management

goals – these will normally be circumstances of supplier or buyer dominance.

In other circumstances both of the parties will have extensive power
resources that force both parties to work together and share the com-
mercial returns created by the relationship.
Whether the buyer achieves more than the supplier and vice versa, or
whether they both equally achieve their commercial goals is – as we will
demonstrate in what follows – a function of the relative power between
the buyer and the supplier, both now and in the future. It is also, as we
shall see, a function of the ability of either party to make appropriate
operational and commercial choices when they work together in
business relationships.
The ability of managers – whether acting as buyers or suppliers – to
make appropriate commercial and operational choices about how to
align business relationships with other parties is in our view one of the
keys to competitive advantage. Many companies – as the case studies
that follow in the second part of this volume demonstrate – experience
significant problems in aligning their commercial and operational goals
effectively. It follows that the misalignment of business relationships
must be a significant waste of valuable and scarce corporate time and
resources. If companies could find ways of better aligning their com-
mercial and operational goals when they engage in business relation-
ships then they would clearly achieve a competitive advantage over
those companies that cannot.

1.3 Conclusion
The chapter has shown that there are many different perspectives on busi-
ness relationship management, and major differences of opinion about
what managers should do to be effective in managing their relationships,
either as buyers or suppliers. Overall the analysis has concluded that far
too many of the current approaches are one-dimensional, descriptive or
overly prescriptive about specific approaches to relationship management
for either the buyer or the supplier. Only the IMP, RPM and Power
approaches, it has been argued, take a sufficiently holistic approach to
analysing the objective circumstances and the full range of relationship
management choices available for buyers and suppliers.
Given this, it is clear that it is through a combination of the Power
Perspectives specification of the key variables that impact on manage-
rial choice, and the IMP and RPM specifications of relationship man-
agement choices, that an inclusive approach to relationship alignment
 Current Approaches 27

for buyers and suppliers can be achieved. Before this can be achieved it
is necessary, first, to fully specify what the commercial goals of buyers
and suppliers are. Having achieved this it is then necessary to discuss in
detail the full range of operational choices available to the buyer and
supplier to achieve these goals.
The next chapter examines the commercial goals (strategic ends) of
buyers and suppliers, and how these relate to power in exchange trans-
actions. This is then followed by a discussion of the operational means
available to buyers and suppliers to achieve their commercial goals in
business relationships.

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Index
accommodation 17
Achrol, R.S. 16
acquaintance 17
administration 17
adversarial arm’s-length relationships
79–82, 104, 113
cases of alignment 138
dysfunction 197, 198, 202, 205,
209
misalignment and sub-optimality
167, 171, 176, 181, 191
adversarial collaboration 85–90, 116,
126
cases of alignment 160
dysfunction 208, 217, 220
misalignment and sub-optimality
180, 186
aggressive buyer 13
agile school 8
air travel case 168–72
alignment 81, 95–131, 135–62
arm’s-length dominance: closures
case 135–9
arm’s-length reciprocity:
consumables case 139–45
arm’s-length supplier dominance:
decision-control case 145–9
buyer-dominant collaboration:
sub-assembly outsourcing case
149–54
ideal-typical frameworks 103–27
ideal-typical frameworks for
misalignments 127–30
operational means 85, 89, 91, 93
reciprocal collaboration: fan cowl
doors case 154–8
supplier-dominant collaboration:
flow management case
158–62
value appropriation outcomes
95–103
ally 228
Anand, P. 16
Anita, K. 21
arm’s-length 70
buyer dominance: licensing case
163–8
239
buyer–supplier reciprocal 99–100
closures case 135–9
dominance 135–9
operational 99–100
reciprocity 108–11, 139–45,
168–72, 198–203; air travel case
168–72; consumables case
139–45; dysfunction 203;
reverse auction case 198–203
see also adversarial; buyer
dominance; non-adversarial;
supplier dominance
Arndt, J. 16
atmosphere 19
attractiveness 69–70
bargain basement buyer 13
Barney, J.B. 15
benchmarking 145
Bensaou, M. 8, 20, 45, 101
Benson, J.K. 16
Benton, B.C. 22
Berry, D. 8
bilateral governance 9
bio-materials waste case 187–92
Blau, P.M. 21
business transactions and relationships
in theory and practice 23–6
buyer dominance 26, 42, 47, 48, 49
adversarial arm’s-length 116
alignment 96, 104, 116, 117, 121,
125
arm’s-length 98–9, 104–8, 138,
163–8, 193–8; misalignment
and sub-optimality 174;
telecommunications case
193–8
cases of alignment 138, 152, 158
dysfunction 195, 197, 208,
209–10, 212
managers 233, 235
misalignment and sub-optimality
164, 165, 167, 174, 176, 180,
192
operational means 55–6, 65, 68,
75, 77–8, 81, 84–5, 88–9, 91–2
see also collaboration
240 Index
buyer power 33–40
buyer supplier
reciprocal arm’s length 99–100
reciprocal collaboration 102
Campbell, N.C.G. 19–20, 21, 22, 98
Cannon, J. 38, 69, 86
Carlisle, J.A. 8
carriage trade buyer 13, 14
Christensen, C.M. 126
Christopher, M. 8
closures case 135–9
coincidence of interest 33
collaboration 17, 69
buyer dominant 100–1, 114–18,
120, 149–54, 176–81, 207–13;
cases of alignment 152, 154;
construction case 176–81;
dysfunction 208, 209, 210,
212; misalignment and sub-
optimality 180; rings and
prismatics case 207–13;
sub-assembly outsourcing case
149–54
buyer supplier, reciprocal 102
high 152
negotiated 120
non-adversarial 117, 120, 121,
125, 152, 154
operationally 101–3
supplier dominance 102–3, 122–7,
158–62, 187–92, 218–22;
bio-materials waste case
187–92; dysfunction 197, 214,
220; flow management case
158–62; logistics case 218–22
see also adversarial; non-adversarial;
reciprocal
commercial goals 50
commercial and operational
customer/account management
choices of supplier 62–74
development account 64–5
exploitation account 66–7
key account 65–6
low-value account 67–71
proactive cost leadership 71–3
proactive differentiation 72–3
proactive and reactive status quo
73–4
reactive cost leadership, reactive
differentiation, reactive cost
leadership and
differentiation 73
commercial and operational sourcing
choices of buyer 52–62
competent not congruent supplier
56
congruent not competent supplier
56–7
ideal supplier 55
supplier development 58–9
supplier selection 57–8
supply chain management 59–62
supply chain sourcing 58
worst-case supplier 55
commercial relationship 24
commercial results 45–50
commercial value appropriation 127
commercially adversarial 99–101,
103, 152
commercially non-adversarial 99–103
competence and congruence 55, 61,
138, 180
competent not congruent supplier
56
alignment 113, 121, 147, 160
dysfunction 197, 202, 205, 220
misalignment and sub-optimality
165, 169, 176, 190
competitors 69
comprehensive contracting 10–11
congruent not competent supplier
56–7
Connolly, W.E. 35
construction case 176–81
consumables case 139–45
contested market places 37
Cook, K.S. 21, 22
cost leadership 106
alignment 121, 138
dysfunction 209, 220
misalignment and sub-optimality
186
reactive 73, 167, 209
see also proactive
costs
hidden 214
see also increased; reduced; static
Cox, A. 212, 229, 336
alignment 101, 106, 121
current approaches 7, 8, 15,
22, 25
operational means 55–6, 60–1, 71,
77, 79, 87
power, leverage and strategic
purposes 35, 40–1, 44, 45–6
Cunningham, M.T. 19, 21, 22
 Index 241

current approaches 3–27 Easton, G. 19

business transactions and Ellram, L.M. 7, 98
relationships in theory and Emerson, J. 22
practice 23–6 Emerson, R.M. 21
holistic dyadic approaches 19–23 ends 41, 46
one-dimensional dyadic approaches see also strategic ends
4–18 enemy 229
customer account management 50 engine controls case 213–18
customer portfolio management environmental factors 19
12–13 exchange costs 39, 41, 47
exploitation account 66–7, 147
decision-control case 145–9 alignment 113
decision-tree 229–32 dysfunction 202, 205, 220
development account 64–5, 84 misalignment and sub-optimality
alignment 106, 116, 138, 144, 152 171, 176, 191
dysfunction 203, 209 operational means 68, 80,
misalignment and sub-optimality 81, 89
167, 174, 180 external circumstances 32
operational means 88
development position 181 fan cowl doors case 154–8
differentiation 73, 117 Ferguson, N. 8
alignment 106, 152 first-tier 56, 59, 69
dysfunction 197 flow management case 158–62
misalignment and sub-optimality Ford, D. 19, 20, 21
167, 180 Frazier, G.L. 16, 21
offering 126 friend 17
reactive 73, 138, 167 functionality 57, 59, 74, 80
see also proactive reduced 53, 54, 111, 220
divide and rule approach 191 reduced costs 183
dominant approaches in marketing see also improved; increased;
and sales thinking 12–15 static; use value
dominant approaches in procurement functionaries 228
and supply 5–12 fundamental transformation 10, 11,
domination 17 59–60, 87
Dwyer, F.R. 16, 21
dyadic approaches see holistic Gadde, L.E. 21
dyadic approaches; one- Gallie, W.B. 35
dimensional dyadic approaches Gaski, J. 16, 21
dysfunctional buyers and suppliers gatekeepers 228
193–222 Gelderman, C.J. 7
arm’s-length buyer dominance: general clause contracting
telecommunications case 11, 122
193–8 goals 25
arm’s-length reciprocity: reverse Grassenheimer, J. 22
auction case 198–203 Grove, A.S. 100, 103
arm’s-length supplier dominance:
insourcing case 203–7 Hakansson, H. 19, 21, 86
buyer dominance collaboration: Hallen, L. 38, 86
rings and prismatics case Hamel, G. 15
207–13 handling factors 19
reciprocal collaboration: engine Harrison, A. 8
controls case 213–18 Heidi, J. 16
supplier-dominant collaboration: hidden costs 214
logistics case 218–22 Hines, P. 8
242 Index
holistic dyadic approaches 19–23
International Marketing and
Purchasing Group 19–21
Power Perspective 21–3
Houtl, T. 8
ideal and optimal 55, 75–92
adversarial arm’s-length
relationships 79–82
adversarial collaboration 85–90
non-adversarial arm’s-length
relationships 82–5
non-adversarial collaboration 90–2
ideal supplier 55, 108
alignment 104, 114, 144, 152
dysfunction 197, 202, 203, 214, 220
misalignment and sub-optimality
165, 167, 176, 180, 183, 190
operational means 61, 68
ideal-typical frameworks 103–27
arm’s-length buyer-dominance
104–8
arm’s-length supplier-dominance
111–14
collaborative buyer dominance
114–18
reciprocal arm’s length 108–11
reciprocal collaboration 118–22
supplier dominance, collaborative
122–7
ideal-typical frameworks for
misalignments 127–30
improved functionality 53, 54, 120,
125
cases of alignment 142
dysfunction 220
misalignment and sub-optimality
165, 167
and reduced costs of ownership
104, 114
with static costs 104, 114
increased costs 54, 111, 125
cases of alignment 147
dysfunction 202, 205, 220
misalignment and sub-optimality
176
increased functionality
cases of alignment 147, 152
dysfunction 195, 197, 207
increased returns 63, 113, 121,
125
cases of alignment 147, 155
dysfunction 197, 202, 205, 208,
216, 220
misalignment and sub-optimality
167, 176, 181
increased revenue 63, 106, 113, 116,
118, 121, 125
cases of alignment 152, 155
dysfunction 208, 216
misalignment and sub-optimality
176, 181, 186, 191
independence 42, 47–8, 49
alignment 99, 108, 110, 111
cases of alignment 139, 142, 144,
145
dysfunction 194, 199, 202, 203
managers 233, 235
misalignment and sub-optimality
168–9
operational means 55, 67, 81, 83,
84, 85, 90, 91
reciprocal 110
insourcing case 203–7
interdependence 38, 39, 42–3, 45,
47, 48, 49, 50
alignment 102, 117, 118, 120,
121, 122, 125
cases of alignment 154, 155, 158
dysfunction 194–5, 197, 204, 205,
212, 214, 219, 220
managers 233, 235
misalignment and sub-optimality
169, 171, 181, 183, 184, 187,
192
operational means 55, 66, 75, 78,
90–1
internal support 225–9
International Marketing and
Purchasing Group 10, 19–21,
26
irritant 229
isolating mechanisms 14, 37
IT outsourcing case 181–7
Japan 7, 101, 117
Johanson, J. 19
John, G. 16
Jones, D.T. 8
key account 65–6, 121, 125
cases of alignment 155
dysfunction 209, 216, 220
misalignment and sub-optimality
167, 184, 186, 191
key ally 228
key enemy 229
Keynes, J.M. 235
 Index 243

know-how 162 reciprocal collaboration: IT

Kraljic, P. 5–6 outsourcing case 181–7
Krapfel, R.E. 16, 22, 98 supplier-dominant collaboration:
biomaterials waste case
Lacity, M.E. 117 187–92
Lamming, R.C. 8
lean manufacturing 7, 165 Naim, D. 8
lean supply 8, 11 Naylor, M. 8
leverage see power, leverage and negotiation 17
strategic purposes non-adversarial 77
licensing case 163–8 non-adversarial arm’s-length 82–5,
limiting factors 19 108, 110, 113
logistics case 218–22 alignment 106, 140, 144, 145, 147
Lonsdale, C. 87 dysfunction 202, 203, 205, 209
Low, B.K.H. 38, 45, 87 misalignment and sub-optimality
low value 167, 169, 174, 176, 181, 190
account 67–71, 110, 180 non-adversarial collaboration 90–2
approach 84 cases of alignment 155, 160
quadrant 144 dysfunction 197, 209, 214, 217,
Lukes, S. 35 219, 220
misalignment and sub-optimality
Macbeth, D. 8 180, 183, 186, 187
Maloni, M. 22
management styles, range of Olsen, R.F. 7, 98
32 one-dimensional dyadic approaches
managers, way forward for 4–18
225–37 dominant approaches in marketing
decision-tree 229–32 and sales 12–15
internal support 225–9 dominant approaches in
opportunism 232–6 procurement and supply
marketing 12–15 thinking 5–12
Mason-Jones, R. 8 relationship portfolio mapping
Mattsson, L.G. 19 16–18
maverick purchasing 140, 145 operational means 27, 32, 33, 50,
maximising 78 52–93
means 46 alignment 95–6, 104
Meyer, C. 8 commercial and operational
misalignment 127–30, 128 customer/account management
misalignment with dysfunctional choices of supplier 62–74
conflict 82, 85, 89–90, 91, commercial and operational
92–3, 130–1 sourcing choices of buyer
misalignment and sub-optimality 52–62
130–1, 163–92 ideal and optimal 75–92
arm’s-length buyer dominance: operational relationship 24, 32
licensing case 163–8 operational way of working 127
arm’s-length reciprocity: air travel opportunism 232–6
case 168–72 optimal see ideal and optimal
arm’s-length supplier dominance:
pipeline case 172–6 Parker, R.C. 8
buyer dominance collaboration: partner 16
construction case passive buyer 13
176–81 Penrose, E. 15
operational means 82, 85, 90, Perreault, W.D. 38, 69, 86
91–2, 93 Peteraf, M.A. 15
244 Index
Pfeffer, J. 22
pipeline case 172–6
Porter, M.E. 22, 71
portfolio approach 20
potential ally 229
potential key ally 228–9
power 18, 26, 38, 39, 42
brokers 228
buyer 33–40
circumstance 127
supplier 33–40
see also power, leverage and
strategic purposes
power, leverage and strategic purposes
32–50
leverage, power positions and
commercial results 45–50
power matrix 40–4
strategic ends and buyer/supplier
power 33–40
Power Matrix 21–3, 44, 49, 50
Prahalad, C.K. 15
price dispersion analysis 68
proactive 56, 57, 58, 59, 68, 118
proactive cost leadership 71–2, 117,
126
cases of alignment 152
and differentiation 72–3
dysfunction 197
misalignment and sub-optimality
180
proactive differentiation 72, 121,
126
dysfunction 209, 220
misalignment and sub-optimality
186
proactive status quo 73–4,
126, 217
procurement 5–12
product differentiation 160
profit, normal 37
Provan, K. 22
purchasing portfolio 5, 14
Ramsay, J. 8, 22
reactive 56, 57, 58, 68
reactive cost leadership 73, 167,
209
reactive differentiation 73, 138, 167
reactive status quo 73–4, 110, 113
cases of alignment 144, 147
dysfunction 202, 205, 220
misalignment and sub-optimality
171, 174, 176, 181, 186, 191
reciprocal collaboration 118–22,
154–8, 181–7, 213–18
dysfunction 197, 204, 212, 214,
216, 217, 220
engine controls case 213–18
fan cowl doors case 154–8
IT outsourcing case 181–7
misalignment and sub-optimality
184
reciprocity
alignment 98, 120, 157
dysfunction 213
inadvertent 99
see also arm’s-length
reduced costs 53, 54, 104, 114, 120
dysfunction 197, 203
misalignment and sub-optimality
183
operational means 57
reduced costs of ownership 207–8
cases of alignment 142, 152
dysfunction 210, 220
misalignment and sub-optimality
167, 174
reduced returns 62, 63, 106, 116, 118
cases of alignment 138, 152
dysfunction 197
misalignment and sub-optimality
167, 180, 186
reduced revenue 62, 63, 106, 110,
113, 118, 121
relationship portfolio mapping
16–18, 21–2, 26
relationship strategies 50
rents 37, 39, 41
resource-based school 14–15
returns 69
above normal 160, 162
maximisation 36
see also increased; reduced; static
Reve, T. 16
revenue 39
declining 116
flow 41
maximisation 36
see also increased; reduced; static
reverse auction case 80, 198–203
Rich, N. 8
rings and prismatics case 207–13
rival 17
Rumelt, R.P. 15, 37
Salancik, G.R. 22
sales 12–15

Sanderson, J. 8, 15, 22, 40–1, 44
satisficing behaviour 78, 98, 102
scarcity 41
Schul, P.L. 16
Schumpeter, J.A. 126
Scott, C. 22
Sejo, O. 16
self-seeking interest with guile 88,
122
Shapiro, B.P. 13–14, 68
Shimizu, I. 117
Simon, H.A. 10, 78, 98, 232
sourcing approaches 50
Stalk, G. 8
static costs 54, 111, 120, 142, 165,
197
of ownership 108
static functionality 53–4, 104, 108,
111, 114, 120, 125
cases of alignment 142, 147
dysfunction 197, 202, 203,
205
misalignment and sub-optimality
174, 176
static pricing 202
static returns 62, 63, 110, 113, 121,
125
cases of alignment 144, 155
dysfunction 203
misalignment and sub-optimality
174, 180, 191
static revenue 63, 106, 110, 113,
116, 118, 121, 125
cases of alignment 138, 144, 147,
155
dysfunction 197, 202, 203, 205,
216, 220
misalignment and sub-optimality
167, 174, 180, 191
status quo
proactive 73–4, 126, 217
see also reactive
Stern, L.W. 16
strategic ends 27, 32, 50
alignment 95–6, 98, 103–4
and buyer/supplier power 33–40
operational means 75–6, 78, 86
strategic purposes see power,
leverage and strategic purposes
strategies, range of 32
strategists 228
sub-assembly outsourcing case
149–54
submission 17
Index 245
sub-optimal see misaligned and
sub-optimal
Summers, J.O. 16, 21
supplier development 58–9, 88, 89,
121, 125
cases of alignment 150, 152, 155,
157, 160
dysfunction 197, 214, 220
misalignment and sub-optimality
180
operational means 91
supplier dominance 26, 43–4, 46,
47, 48, 49
alignment 98, 111, 117, 121,
122–3, 125, 162
arm’s length 100, 111–14, 145–9,
172–6, 203–7; cases of
alignment 147; decision-
control case 145–9;
dysfunction 202, 205;
insourcing case 203–7;
misalignment and
sub-optimality 167, 171, 176;
pipeline case 172–6
cases of alignment 147, 160, 162
dysfunction 194, 202, 203, 205,
214, 216, 217, 222
managers 233
misalignment and sub-optimality
173–4, 184, 186, 188, 190
operational means 55–6, 66, 68,
75, 77–8, 81, 83–5, 88–9, 91–2
see also collaboration
supplier leverage 49
supplier power 33–40
supplier selection 57–8, 80, 84, 106,
108, 125
alignment 104, 113
cases of alignment 138, 144, 147,
160
dysfunction 197, 202, 205
misalignment and sub-optimality
165, 167, 176
reactive 190
supply 5–12
supply chain 56
supply chain management 5, 7–10,
11, 21, 59–62
alignment 121, 155, 157
dysfunction 208, 214
operational means 88, 89, 91
proactive 210
supply chain sourcing 58, 84, 104,
106, 138
246 Index

telecommunications case 193–8 buyer–supplier reciprocal

tension 38–9, 75, 82, 96, 98, 107 collaboration 102
Thorelli, H. 16, 21 supplier-dominant arm’s-length
Towill, D. 8 relationship 100
Townsend, M. 8 supplier-dominant collaboration
Toyota 7–8, 101 102–3
transaction cost economising 5, van Hoek, R. 8
9–10, 11, 12, 16, 77, 86 van Weele, A.J. 7
transactional conflict 25
transactional harmony 25 Walmsley, G.L. 16
transactional tension 25 Watson, G. 8, 15, 22, 40–1, 44
Turnbull, P. 14, 19 Wernerfelt, B. 15
Westbrook, R. 22
United States 182, 184 Williamson, O.E. 9–11, 22, 117, 122,
use value (functionality) 35–9, 41–3, 129, 217, 232
46–9 operational means 59, 86–7, 88
operational means 52–3, 55, 58, willing supplicant
62, 70 alignment 104, 106, 107, 118, 152
utility 41 dysfunction 217
misalignment and sub-optimality
value appropriation outcomes 96, 98 165, 181
alignment 103 win–win satisficing 78
buyer-dominant arm’s-length Womack, J.P. 8
relationships 98–9 Wootz, B. 19
buyer-dominant collaborative worst case supplier 55, 180
relationship 100–1
buyer–supplier reciprocal arm’s- Zald, M.N. 16, 21
length relationship 99–100 Zolkiewski, J.M. 14